Ways to Reduce Principle Balance of Loan Amount

The principle balance of a loan is the total amount owed. When the loan is being granted, amount to be repaid and the term for repayment is determined by the lender and the borrower has to follow it in order to avoid any penalty. The principle amount keeps reducing as the loan amount is repaid every month. Cutting the principle balance further down is indeed very difficult and requires a good budget, but it's not unachievable.

For reducing the principal, the best way is to use cash at hand. If one has any kind of saving such as bonds, investments, stocks, retirement funds or others, now is the time to utilize them. Based on the amount available with the payee, one can cut back a lot on his principle amount.

Another good way is to hike up the standard payment. To do that, one has to cut down his monthly spending such as eating out, frivolous shopping, traveling and other expenses. A little change in the lifestyle for a while will reduce quite a good amount from the principle balance. While beefing up the standard payments, one has to ensure that his lender is aware in order to precisely reduce the principle balance.

It's very important to consider equity amortization. Prior to making extra payments each month, one should consult the lender about paying principle balance without resulting in equity amortization. During the early years of loan repayments, principle balance is significantly lesser and a good amount can be repaid during this time.

Whatever extra amount one is paying a month, it's not supposed to give him relief the coming month. In other words, one has to keep in mind that if he repays good enough amount this month, he still has to make a payment the next month. And missing even a single payment calls for late fee. Therefore, he should plan his payments carefully.

One can make repayments biweekly. Choosing to repay the amount twice a month will help reduce the interest paid on the loan and decrease the principle amount rapidly. Additionally, one can seek financial help from a family member which will have a huge impact on the principle balance.

Reducing the principle amount is beneficial indeed but it will also wipe out the tax benefits. So, if a person is paying low interest, it will be quite beneficial for him to hang on to paying it over the tenure suggested by the bank. This will definitely serve him better plus he can put the extra money to a better use like a retirement fund.

Note: Prior to paying off money early in the tenure, one should ensure that the repayment schedule doesn't come with any penalty regarding prepayments.